What To Do With LIPA?

As of yesterday, the Long Island Power Authority is now 1) in the crosshairs of Gov. Andrew Cuomo’s Moreland Act Commission, and 2) rudderless, thanks to the resignation of its acting head, Michael Hervey, who tendered his resignation shortly after Cuomo announced a formal investigation of the utilities’ response to Sandy, Irene and Lee.

The commission’s scope actually includes NYPA, LIPA, NYSERDA, and the Public Service Commission, but LIPA has born the brunt of Cuomo’s wrath as post-Sandy power outages dragged on in Nassau and Suffolk Counties.

As has been noted with increasing frequency now, Cuomo actually has the power to do something about LIPA, since it’s a public entity and nine of its 15 trustees – including the chairman – are gubernatorial appointees.

Even though Cuomo pledged to reform LIPA during his 2010 campaign for governor and launched what he promised would be a “swift and thorough” audit of the authority’s rate system after Hurricane Irene, he has taken no definitive action to change things.

In fact, as Dana Reubenstein notes, there are only 10 trustees currently serving on the LIPA Board, and only six of the nine seats Cuomo is responsible for filling are actually filled. Three occupants of those seats are serving on borrowed time, as their terms have already expired.

Bill Hammond pointed out that since Cuomo took office back in January 2011, he has made just one appointment to the LIPA Board.

The guy who got bounced was Michael Fragin, a former Pataki administration aide and Orthodox Jewish/Republican operative. He was replaced last symmer Flushing-based construction-company owner Peter Tully.

Fragin reminded me this afternoon that LIPA had been considering changes that would have dramatically changed its internal structure, and even considered the possibility of privatization – an option Cuomo hasn’t yet ruled out.

But it turns out LIPA doesn’t have a lot of options, in part because it’s carry so much debt – about $7 billion worth of bonds related to the Shoreham nuclear reactor and various capital projects.

Ironically, it was a desire to prevent LIPA’s predecessor, LILCO, from opening the controversial nuclear plant that caused former Gov. Mario Cuomo to create LIPA in the first place, saddling the new authority with a gigantic white elephant that it couldn’t use to generate a dime in revenue.

Of course, LIPA’s debt is public, which means ratepayers are still paying through the nose, but at a lower rate than they would if Shoreham’s owner were a private entity.

On Monday, Fitch Ratings lowered its outlook on $5.9 billion of LIPA’s A-rated debt to negative from stable, saying that the aftermath of Sandy will put an additional strain on the authority’s already tight finances.

Another problem is the millions of dollars LIPA is paying every year in property taxes.

Last year, the Long Island Business News reported that LIPA’s taxes and assessments would rise $51.7 million in 2012 over the levels budgeted for 2011.

The authority and its more than 1 million ratepayers were slated to pay $537 million in property taxes in this year, and payments in lieu of taxes wer scheduled to be $264.5 million – up $42.5 million or 19.1 percent from the level budgeted for 2011.

At the time, LIPA Chairman Howard Steinberg (a Pataki appointee whose term has expired) blamed inflated assessments for the authority’s woes and vowed to redouble its efforts to fight its tax bill in the courts and with the Legislature.

According to Fragin, who served on the LIPA Board from 2006 to 2011, it’s only recently that LIPA has gotten aggressive about challenging its assessments – a practice he called “something of a sport on Long Island.”

Property taxes account for 24.2 percent of the LIPA delivery charge. According to Fragin, roughly 30 cents of every dollar at LIPA goes toward servicing the debt and paying taxes, adding: “When you’re spending all that money on things that have nothing to do with your electric system, other areas are suffering.”

Here’s the dirty little secret about LIPA (aside from its reputation as a patronage mill, which is barely a secret at all): While local elected officials love to complain about it, they also love the tax revenue it generates. And without that revenue, some already cash-strapped local governments would would have a serious problem on their hands.

If you privatized LIPA, it would continue to pay taxes. But, if you made it a purely municipal entity run entirely by public employees, who, of course, would come with their own additional costs, the property tax stream would dry right up.

“A lot of politicians look at LIPA as if it’s a cash cow,” Fragin told me. “…Obsolete plants that barely run, their assessments are in the hundreds of millions of dollars. They’re paying millions to various localities, and probably should be paying a lot less.”

“LIPA has large structural issues that most of the politicans in Albany and on Long Island don’t want to deal with and a lot of that. It all stems from decisions made decades ago. Nobody wants to deal with the debt and the taxes. The board has been strategically looking at this structure for the past couple of years….and the reality is that none of them are really workable. They only thing that’s workable is the hybrid model that we have.”

This entry was posted by Liz Benjamin on November 14, 2012 at 4:24 pm, and is filed under Hurricane Sandy. Follow any responses to this post through RSS 2.0. Both comments and pings are currently closed.

Student

LIPA, a patronage mill … and a cash cow. Who could ask for anything more?!?

http://www.facebook.com/profile.php?id=657874259 Kevin Davitt

If ultimately LIPA is the governor’s responsibility (appointing the Chair and other Board positions) isn’t he shooting himself in the proverbial foot?